One of the foremost architects of the American banking system, Federal Reserve Bank Governor Daniel Tarullo will be resigning in the next two months. This paves the way for President Trump to appoint his own officials to speed up the deregulatory plan for Wall Street companies. Tarullo inked a letter to President Trump indicating he would be resigning around April 5, 2017. Tarullo was not expected to retire until 2022, but there is significant pressure being brought to bear on him by White House policies. This move is especially important as Tarullo was regarded as the bulwark against banks acting with carte blanche. He ensured that safeguards were in place for the prevention of another Lehman Brothers meltdown that precipitated the global financial crisis. There are 2 distinct schools of thought with regards to regulation: those in the Trump camp who believe in deregulating the financial sector to accelerate economic growth, and those who believe the safeguards are necessary for the prevention of unchecked profits, bubbles, and another financial crisis.

President Trump is pursuing a policy of deregulation, decreased taxation, and massive fiscal stimulus. For binary options traders, the imminent resignation of Daniel Tarullo presents an opportunity for big profits with financial stocks. For example, Citigroup Inc. and Bank of America Corporation stock rose 1% within an hour after Tarullo announced his resignation. With the departure of Tarullo, the Federal Reserve Banks board of governors (BoG) will now have 3 vacant seats. This is especially important given that the Fed is responsible for shaping economic growth in the US. As the central reserve bank of the world’s #1 economy, any changes to the construction of the Fed’s board has far-reaching implications for the global economy. Janet Yellen is expected to retire in 2018, and this will give Trump significantly more leeway when it comes to appointing key people to the world’s most powerful central bank. The GOP is determined to rewrite the Dodd-Frank law, and given that Congress is at loggerheads over the issue, the only other way Trump has to enact change is with governors at the Fed.

Tarullo’s Departure Sends the Hawks and Doves Fluttering

However, Tarullo is of the opinion that it is hard to argue with the regulatory principles that Mr. Trump has laid out in his election campaign. He remains hopeful that the core accomplishments of the Fed – improved risk management, capital, liquidity, and workable resolution strategies – will remain in place. One of the potential replacements for Tarullo is a former executive of General Electric Company, David Nason. Other candidates include Gary Cohn of Goldman Sachs Group Inc., and John Allison of BB&T Corporation. Under Tarullo’s watch, big banks were taxed heavily on size, but they were not forced to break up. Congress currently supports stringent rules against banks vis-à-vis capital, and undoing such regulation would likely take many years and require approval across multiple regulatory agencies. Binary options traders will want to watch potential replacements for Tarullo and the other vacant seats, to determine whether they are hawks (in favour of raising rates) or doves (in favor of monetary easing).

Trading opportunity #1 – Citigroup Stock on the Rise

Citigroup stock (C) is currently trading at $57.63 per share, up 0.65% or $0.37. Recall that Federal Reserve Bank Governor Daniel Tarullo wrote a letter to Trump indicating that he would be resigning on or before 5 April 2017. Since he oversaw the enforcement of stringent regulation on banks, his departure will invariably benefit bank bulls. Stocks like Goldman Sachs (GS), Citigroup, Bank of America (BAC), Wells Fargo & Company (WFC), and others have rallied on the news that he will be leaving. It is likely that his replacement will be in favour of deregulation and the easing of restrictions on how banks operate. Citigroup Inc. currently has a market capitalization of $159.77 billion and a respectable price earnings ratio of 12.53.

The stock has $4.60 earnings per share, and the 1-year target estimate price is about $7 higher than the prevailing price. If we look at the performance of Citigroup stock over the past 4 fiscal quarters, it has bested forecasts on each occasion. Between Q1 2016 and Q4 2016, C has generated positive earnings surprises, and this is likely to get a swift boost in 2017, what with Trump’s plans for deregulation of Wall Street. There are several other components that will boost banking stocks this year, including proposals for lower corporate taxes (15% – 20%) and interest rate hikes. As a binary options trader, your long-term perspective is bullish, although we can expect certain hiccups to cause pullbacks, especially profit-taking.

Trading opportunity #2 – USD/JPY and Trump’s support for Japan

North Korea recently test fired a ballistic missile, threatening the fragile geopolitical balance between that country, South Korea, Japan and the United States. However, President Trump came out strongly in support of Japan, while meeting with Prime Minister Shinzo Abe on Sunday, 12 February 2017. Abe was vehemently opposed to the actions taken by North Korea, and was quoted as saying – North Korea’s most recent missile launch is absolutely intolerable. North Korea must fully comply with the relevant UN Security Council resolutions. In response, Trump reaffirmed America’s support of Japan: I just want everybody to understand and fully know that the United States of America stands behind Japan, it’s a great ally, 100%. The provocation by North Korea was designed to coincide with Abe’s meeting with Trump.

The USD/JPY currency pair is trading around 113.80, and is holding steady on the back of an unshakable relationship of trust between both countries. By Friday, 10 February 2017, the pair was up 0.05% at 113.27, reaching a daily high of 113.85, and skirting lows of 113.04. Market analysts are convinced of the strong relationship between Japan and the United States, as evidenced by the meeting between the two leaders on Sunday. While Trump has been rather harsh on Japan for stealing American jobs, the Japanese premier is intent on building a stronger alliance with the US, and one which is based on trust and prosperity. Naturally, there are some technical levels to consider, such as the February 1 high of 113.94, and the 50-day moving average of 114.98. If we go beyond those levels, the January 11 high of 116.85 is next in line. Support levels for the pair are 110.06 – the 100-day moving average, and 111.58, the low reached on 7 February 2017. If the Fed acts to raise interest rates, we could see upward momentum in the USD/JPY, but a key selloff level would be beneath the 113 handle.

Trading opportunity #3 – buying gold coins now a viable investment?

Gold is currently trading at $1,233.40 per ounce, down 0.08% or $1. The precious metal has appreciated by 3.25% over the 30 days, up $38.80 per ounce. Over the past 1 year, gold has underperformed with gains of just 3.32%, or $39.70 per ounce. The performance of gold has been extraordinarily bearish since 2 November 2016 when it was trading at $1,306.80 per ounce. A risk-on approach to Wall Street equities has led to unprecedented gains in stocks, and gold has naturally taken a backseat. The precious metal dropped to a low of $1,128.80 per ounce on 22 December 2016, before reversing and starting its gradual appreciation to its current price.

An interesting new development has been taking place in Arizona, where lawmakers are now moving towards zero taxation on residents who buy/sell gold coins in the state. The bill is subject to a final vote, and it will allow people to have an exemption when claiming capital gains on gold coins, art, antiques, and the like. For example, if you purchase gold coins worth $10,000 and sell them for $15,000, you would typically be subject to capital gains on $5,000 profit. That provision will be scrapped if the law is passed. While the Arizona regulation is unlikely to impact broader gold sales, it will provide some upward momentum for the gold price. As a binary options trader, though, your focus should be on the upcoming Fed rate hikes. Here are some key probabilities:

• March 15, 2017 – 86.7% probability of rates remaining at 0.50%-0.75%
• May 3, 2017 – 66.3% probability of rates remaining at 0.50%-0.75%
• June 14, 2017 – 32.7% probability of rates remaining at 0.50%-0.75%

With Tarullo’s resignation, we can expect the hawks to get their way sooner than later. A rate hike will apply bearish pressure on gold, making Put Options might be considered.

Trading Opportunity #4 – Trading the FTSE 100 Index

The FTSE 100 index is trading at 7,258.75, up 0.40% or 29.25 points. The FTSE 100 index has been on the rise recently, as you can see from several successive sessions of gains. The premier UK stock index has been helped by mining stocks across the board. Leading the way was Anglo-American with 4.8% gains, Antofagasta which rose 4.9% and Rio Tinto which climbed 5.6%. Fortunately, China’s economy is picking up momentum, and improved growth of imports and exports has helped commodity prices like precious metals and industrial metals to rise accordingly. The UK-based FTSE 250 index rallied briefly, but the reversal in the GBP/USD pair did not help to keep momentum moving for the index. Recall that the FTSE 100 index features some 70% of its earnings capacity being generated outside of the UK, and when the GBP is weak, foreign-based earnings are worth more in sterling. The recent reversal in the FTSE 100 index is likely to continue given the Chinese economic data, and Call Options might be considered.